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France: What happened in 2021 and significant events in 2022

The Year to Come and Year in Review summarise a selection of major developments you should be aware of from 2021, and a selection of key developments expected in 2022.

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key areas in 2021 and 2022

Legislative changes in 2021 have impacted a wide range of areas. In Year in Review, our experts highlight the key changes that have impacted French law over the last year whilst in Year to Come, we take a look at the developments we expect over the next year.

Pierre Tourres, Partner K&L, France 

Pierre Tourres

French law highlights in 2022

ESG

Listed companies and financial institutions that are subject to the Non-Financial Reporting Directive will have to disclose their “taxonomy-eligible” activities. 

Real Estate

Energy performance of residential properties is to be considered when leasing.

Intellectual Property

The Unified Patent Court (UPC) which will be a game-changer for patent litigation in Europe is expected to be implemented in 2022. 

French Competition Authority’s ever-increasing focus on the digital sector and innovation-driven sectors: Even though the presidency of the former President of the FCA Isabelle de Silva was not renewed and a successor has yet to be appointed, we can expect continuity in priorities. No doubt the digital sector will continue to be at the centre of all enforcement action with future decisions (such as the one against Facebook). The FCA will also continue to take part in the debate on the EU Digital Markets Act, the ambition of which is to regulate “gatekeeping” platforms (allowing fines of up to 20% of the companies’ global turnover and requiring an impact assessment for every transaction involving a gatekeeper).
In the field of antitrust, the resurgence of dawn raids is expected and is currently happening at the European Commission level. Finally, cooperation between companies in the field of sustainability and employment law (i.e., no poach agreements) may also be regarded as an enforcement priority. 
In the field of merger control, the FCA will have to take a position on the high-profile and much debated TF1/M6 concentration decision. We expect that the new referral mechanism (as discussed in Year in Review) preventing potential killer acquisitions could be used again in innovation-driven sectors. 

Foreign investment screening: The French Minister for the Economy has announced that the temporary regime adopted during the Covid-19 crisis and lowering the threshold at which the foreign investment screening regime is triggered, from 25% to 10% of voting rights for non-EU investors acquiring shares in in-scope listed companies will be continued until the end of 2022.

Interest rate reform: As the deadline for cessation of LIBOR approaches, banks, asset managers and corporates are focusing on preparations for the transition to new risk-free rates. With respect to EURIBOR, the most widely used benchmark in the bond market, it is not currently planned to cease operating, given changes to its methodology. EONIA, in contrast, is due to be replaced by €STR from 3 January 2022.

Read more or watch our webinar

Interest rate reform: As the deadline for cessation of LIBOR approaches, banks, asset managers and corporates are focusing on preparations for the transition to new risk-free rates. With respect to EURIBOR, the most widely used benchmark in the bond market, it is not currently planned to cease operating, given changes to its methodology. EONIA, in contrast, is due to be replaced by €STR from 3 January 2022.

Read more or watch our webinar

Review of the EU Prospectus Regulation: In the context of the planned five-year review of the Prospectus Regulation, the European Commission must report to the Parliament and the Council on the Regulation before 21 July 2022. The report is expected to assess whether the prospectus summary, the universal registration document and the disclosure regimes set out for secondary issuances, the EU Recovery prospectus and the EU Growth prospectus, remain appropriate for their objectives. The Commission is also expected to assess whether sustainability-related information should be included in the Regulation and make a legislative proposal in order to ensure consistency with related objectives across financial regulation.

Gender balance within top management in large companies: A legislative proposal on professional gender equality that may be adopted in 2022 contemplates to require companies with more than 1,000 employees to publish the gender ratio within their top management (executive-level employees and executive committee (or similar body)) annually. After five years, these companies will also be subject to gender balance requirements within their top management with a 30% minimal proportion of each gender (40% after eight years). The exact perimeter of those requirements is under discussion. Companies that fail to comply with these gender balance requirements could face fines of up to 1% of the total compensation paid by the company in the previous year.
Online payment and AI in the shadow of the ePrivacy: In October 2021, the French data protection authority (CNIL) published a consultation seeking opinions of stakeholders on its plan for online payment methods. The CNIL already stated in its roadmap that this would be a key topic for 2022 with the publication of a code of conduct for payment service providers, doctrines on certain critical compliance points (qualification of actors, data sharing, enrichment of reused payment data) and recommendations on tokenisation. Additionally, with the likely adoption of the European Regulation establishing harmonised rules for artificial intelligence, there is no doubt that AI will be one of the hottest topics of 2022. Nevertheless, these two topics could be quickly swept away by the now long-awaited ePrivacy if the EU member states finally agree on common provisions for the updated regulation. 

New prerogatives of French work councils in relation to environment: As a result of the Climate Act of August 2021, when works councils are consulted on questions concerning the management and general running of a company, this consultation must now include the environmental consequences of companies’ projects. In addition, works councils now have to be informed of the environmental consequences of a company's activity as part of the three statutory recurrent consultations.

Acceptance of “secret” investigations following harassment allegations by the French Supreme Court: The French Supreme Court confirmed for the first time that “secret” investigations on harassment allegations were not an unfair method of proof. In a decision of 17 March 2021, it ruled that (i) investigations carried out following reports of moral harassment do not have to be brought to the attention of the alleged perpetrator beforehand; (ii) the evidence resulting from such investigations may be used in court to support their dismissal even if the employee concerned was not notified of the existence of the investigation beforehand, or even if he/she was not heard by the investigators in this context; and (iii) the outcome of the investigation does not have to be notified to the employee accused of harassment.

Unrolling of the stimulus plan: In October 2021, President Macron announced the strategy for “France 2030”. The objective is for France to be a leader in carbon-free power generation by focusing on nuclear and hydrogen energy as well as electric vehicles and low-carbon planes. There is also a new objective to decrease greenhouse gas emissions by 35% compared to 2015 levels (whereas the decrease in 2021 is currently of 4% compared to 2015).

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Staggered reporting obligations under the EU taxonomy regulations will apply: From 1 January 2022, listed companies and financial institutions that are subject to the Non-Financial Reporting Directive must disclose in their non-financial statements the proportion of “taxonomy-eligible” activities (i.e. activities that may qualify as environmentally sustainable) under the EU taxonomy regulation. From 1 January 2023 (in respect of FY 2022), in-scope companies will have to report on the extent to which their activities are aligned with the taxonomy. The same requirement will only apply to in-scope financial institutions from 1 January 2024 (in respect of FY 2023).

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Environmental, Social and Governance (ESG) reforms anticipated by the French financial markets authority (“AMF”)
Call for a Social Taxonomy - The AMF is encouraging a greater focus on social matters by initiating work on the EU Social Taxonomy. This aims to prevent the risk of “social-washing”.
Call for an EU SRI/ESG label - The AMF points out that many domestic labels have emerged over the years with different approaches and levels of ambition. This results in market fragmentation and confusion for investors and can hamper the cross-border distribution of funds. Therefore, the AMF is encouraging the creation of a harmonised EU regime for a SRI or ESG label.  
Call for an European regulation for the provision of ESG data, ratings, etc. - ESG data providers remain largely unregulated while their influence is expected to grow considerably, and the level of transparency given by these providers over their methodologies differs and is often insufficient. There is also a risk of dependence upon a limited number of non-European providers, and potential conflicts of interest. In this respect, the AMF believes that a European mandatory framework, consisting of an ad hoc regulation is the best approach since data service providers generally operate on a cross-border basis.
Environmental, Social and Governance (ESG) reforms anticipated by the French financial markets authority (“AMF”)
Call for a Social Taxonomy - The AMF is encouraging a greater focus on social matters by initiating work on the EU Social Taxonomy. This aims to prevent the risk of “social-washing”.
Call for an EU SRI/ESG label - The AMF points out that many domestic labels have emerged over the years with different approaches and levels of ambition. This results in market fragmentation and confusion for investors and can hamper the cross-border distribution of funds. Therefore, the AMF is encouraging the creation of a harmonised EU regime for a SRI or ESG label.  
Call for an European regulation for the provision of ESG data, ratings, etc. - ESG data providers remain largely unregulated while their influence is expected to grow considerably, and the level of transparency given by these providers over their methodologies differs and is often insufficient. There is also a risk of dependence upon a limited number of non-European providers, and potential conflicts of interest. In this respect, the AMF believes that a European mandatory framework, consisting of an ad hoc regulation is the best approach since data service providers generally operate on a cross-border basis.
IP protection reinforced by UPC and digital law implementations: The Unified Patent Court (UPC) is expected to finally be implemented following the ratification by Germany on 7 August 2021. France and 17 other Member States have ratified this agreement which is expected to come into force at the end of 2022. The UPC will be a game-changer for patent litigation in Europe.
In addition, the law on audiovisual communication and cultural sovereignty was adopted on 29 September 2021 and intends to combat numerous internet-based infringements and defend creations. The key feature of this law is the merger of the CSA (the French audiovisual regulatory authority) and the HADOPI (a French independent public authority), to form the Regulatory Authority for Audiovisual and Digital Communication (ARCOM), a new independent public authority with a wider scope of action.

A revised framework for cross-border mergers and other corporate reorganisations: As the deadline for transposition of the 2019 EU directive on cross border conversions, mergers and divisions is January 2023, the rules governing EU cross-border corporate reorganisations are expected to be substantially amended in France. The key changes will relate to the following: a new exit right in cash awarded to certain minority shareholders, an increased scrutiny by public bodies and the creation of a new regime for cross-border conversions (that will change the regime of the transfer of a company’s registered seat to another EU member state without the creation of a société européenne).

Foreign investment screening: The French Minister for the Economy has announced that the temporary regime adopted during the Covid-19 crisis and lowering the threshold at which the foreign investment screening regime is triggered, from 25% to 10% of voting rights for non-EU investors acquiring shares in in-scope listed companies will be continued until the end of 2022.

Application of the “tertiary” decree: obligation for tenants or landlords to provide information on their energy consumption: Pursuant to the “tertiary” decree, applicable since 2019, landlords or tenants will have to report annually, by 30 September, information on their energy consumption via a platform called “OPERAT”. The deadline for the first declaration (i.e., declaration of the energy consumption for year 2020) has been postponed from 30 September 2021 to 30 September 2022, consequently, a declaration of energy consumption for years 2020 and 2021 will be required on 30 September 2022.

Impact of energy performance on the residential leasing market: The energy performance of residential properties is to be considered when determining decent residential properties for leasing. The maximum energy consumption is set at 450 kwh/sq.m. Consequently, less energy efficient residential properties will be increasingly penalised. For leases entered into, renewed or tacitly renewed from 24 August 2022, landlords of residential properties classified as F or G will no longer be able to increase the rent until the proper energy consumption improvement works have been carried out. In addition, such properties will no longer be available for rent: from 2025 for housing classified as G (extremely poor energy performance); 2028 for F-rated housing (very poor energy performance) and; 2034 for E-rated housing (poor energy performance).

 

French law highlights in 2021

Banking

The law on guarantees and security interests has been amended. The reform will come into effect on 1 January 2022 although some of the new provisions may apply before this date.

Restructuring and Insolvency

Key reforms were introduced to French insolvency law rules. One of the most noticeable developments is that creditor committees are replaced by classes of parties “affected” by the restructuring proposal (which may also include equity holders).

Tax

The French Administrative Supreme Court held on the same day three significant decisions relating to the taxation of management package in France.

Retail, utility and digital sectors under French Competition Authority’s scrutiny: The FCA was even more active in 2021 than in previous years, both in antitrust and merger control. 
In antitrust, substantial fines were imposed, both in cartel (mainly in retail) and abuse of dominance cases, especially against Google. 
In the field of merger control, the FCA was particularly vigilant in the retail and utility sectors (issuing its second prohibition decision since 2009 – in the utility sector). The FCA also published new guidelines which are set to radically increase the amounts of the fines it will impose. 2021 also saw the transposition of the 2018 ECN+ Directive into French law, which further strengthened the powers of the FCA. 
In the case of the Illumina/Grail transaction, the FCA (joined by other competition authorities) was the first authority in Europe to use the “Article 22” referral mechanism to the European Commission for potential killer acquisitions not subject to national merger controls. 
Finally, the FCA also continued to advocate for better compliance practices, updating and submitting for public consultation its framework on compliance programs.

Reform of the law on guarantees and security interests: The law on guarantees and security interests has been amended by an Ordinance dated 15 September 2021. The provisions governing the main type of French law guarantee (cautionnement) have been rewritten and grouped together in the Civil Code. The changes are unlikely to have major impact on the effectiveness of this type of guarantee, however, there are two key amendments regarding security interests: (i) cash collateralisation no longer takes place through a pledge, but instead by a transfer of ownership of the cash, and (ii) it is now possible to assign receivables by way of security without restrictions (until now, assignments of receivables were only possible in limited circumstances). Additionally, certain mandatory annual information requirements that already applied to guarantees have been extended to cover third party security, and failure to comply with such requirements may result in the beneficiary partly losing their guarantee or security. The provisions of the Ordinance will come into effect on 1 January 2022 although some of its provisions, including the annual information requirement, may apply before this date.

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Improved crypto-assets legal framework: The benefits of using blockchain and distributed ledger technology within financial markets are well-established in France. Further to the PACTE law and to an ordinance published in December 2020, a new decree was published in April 2021 with the aim of fighting against the anonymity of virtual assets and strengthening measures to counter money laundering and terrorist financing. Also this year, the European Investment Bank, advised by Linklaters, issued its first ever notes on the Ethereum public blockchain. The Notes were zero coupon notes issued on a syndicated basis in registered form and were governed by French law.

EU Green Bond Standard: As part of the EU’s wider agenda on sustainable finance, the European Commission published a legislative proposal for a regulation on European green bonds, the ‘European Green Bond Standard’, in July 2021. This proposal lays the foundation for a common framework of rules for issuers of bonds that wish to use the designation ‘European green bond’ or ‘EuGB’ for green “use of proceeds” bonds that pursue environmentally sustainable objectives under the EU Taxonomy Regulation. In France, some issuers have already expressed an intention to apply this standard.

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Update of the Middlenext Corporate Governance Code: The 2021 version of the Middlenext Code clarifies and reinforces existing recommendations, particularly in respect to formalising the procedure for disclosing conflicts of interest, rules of conduct, analysis of minority shareholder votes and principles governing the preparation of the structure and amount of executive director compensation. This revised version also makes three new recommendations: (i) creation of a CSR committee of the Board, (ii) regular training for directors and (iii) improved gender balance at every level of management.

Cookies and Digital health: Cookies were still a major topic of the year 2021, as organisations had until 31 March 2021 to comply with the new guidelines of the French data protection authority (CNIL) on the use of cookies and other trackers. Two waves of formal notices have been issued by the CNIL to organisations that do not allow their users the ability to refuse cookies as easily as they can accept them. The CNIL has already announced that this first round of verifications and corrective measures will be followed by similar actions to ensure organisations are complying with the new guidelines. 

Additionally, the processing of health data remained a significant issue with the continuation of Covid-19. The CNIL issued new recommendations on monitoring health passes, vaccinations and testing and published several opinions regarding the Government’s decisions on these topics. This involvement of the CNIL is in line with its decision to make the protection of health data one of its priorities for 2021. Therefore, the CNIL has also paid particular attention to the security of health data and has been especially active in the management of the various health data breaches that occurred in 2021. 

Solar tariff cuts: In 2020, the Government announced its intention to renegotiate the feed-in tariff applicable to the first waves of solar plants. The decrees implementing the reduction in feed-in tariffs have been adopted and the tariff cut is not as substantial as initially thought. The decrease should not affect investment flows in the renewable energy sector in a context that remains, overall, very favourable.

 

Climate law: France has adopted a law to tackle climate change which provides for a variety of measures. These include extending the obligation to plant vegetation or install PV systems on roofs and car parks, the creation of new criminal sanctions for endangering the environment (including “ecocide”) and the greening of public procurement procedures.

ESG in financial sector regulationsAMF Position-Recommendation DOC-2020-03: The AMF Doctrine deals with ESG considerations for funds distributed in the French market to retail investors since 10 March 2021. In its communication dated 20 January 2021, the AMF confirmed that their Doctrine and the EU Regulation on sustainability-related disclosures in the financial services sector (SFDR) have complementary objectives, with some overlap. Read more and more… 

Article 29 of the French Energy and Climate Law: On 27 May 2021, the Government published a decree detailing the information required by Article 29 of the 2019 Energy and Climate law, and how such information should be presented (i.e., information to be published by financial market participants under SFDR/Taxonomy and additional French ESG disclosures on climate-related and biodiversity-related risks).

EU Commission’s proposal to review the non-financial reporting directive: In April, the Commission published a Proposal for a Corporate Sustainability Reporting Directive (CSRD), which will revise and extend rules introduced by the Non-Financial Reporting Directive. The aim of the CSRD is for consistent reporting on sustainability risks and impacts by all large companies. The proposal extends the scope of the regime from large “public interest entities” to all large companies (listed or not) and all listed companies (except micro-enterprises).

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EU Green Bond Standard: As part of the EU’s wider agenda on sustainable finance, the European Commission published a legislative proposal for a regulation on European green bonds, the ‘European Green Bond Standard’, in July 2021. This proposal lays the foundation for a common framework of rules for issuers of bonds that wish to use the designation ‘European green bond’ or ‘EuGB’ for green “use of proceeds” bonds that pursue environmentally sustainable objectives under the EU Taxonomy Regulation. In France, some issuers have already expressed an intention to apply this standard.

Read more…

ESG in financial sector regulationsAMF Position-Recommendation DOC-2020-03: The AMF Doctrine deals with ESG considerations for funds distributed in the French market to retail investors since 10 March 2021. In its communication dated 20 January 2021, the AMF confirmed that their Doctrine and the EU Regulation on sustainability-related disclosures in the financial services sector (SFDR) have complementary objectives, with some overlap. Read more and more… 
Article 29 of the French Energy and Climate Law: On 27 May 2021, the Government published a decree detailing the information required by Article 29 of the 2019 Energy and Climate law, and how such information should be presented (i.e., information to be published by financial market participants under SFDR/Taxonomy and additional French ESG disclosures on climate-related and biodiversity-related risks).

Implementation of the Cross-Border Distribution of Funds (CBDF) package: The CBDF Directive introduces, inter alia, a new harmonised pre-marketing regime for EU based AIFs and aims to reduce regulatory barriers that hinder the cross-border distribution of funds in the EU. In France, the CBDF Directive was implemented last summer and the national supplementary regime for pre-marketing has been maintained, by extending the scope of the harmonised EU regime to non-EU AIFs and UCITS. The supplementary regime for non-EU AIFs is unclear as, in practice, it is very difficult for a non-EU entity to market non-EU AIFs in France (see the additional conditions to be met to obtain approval for marketing under Article 42 of the AIFMD). The CBDF Regulation, of direct effect since 2 August 2021 in all Members States, introduces harmonized rules applicable to EU AIFs and UCITS marketing communications. 

Implementation of the new EU prudential regimes for credit institutions (CRD V) and investment firms (IFD): Following the implementation of CRD V in December 2020, credit institutions have adjusted to the new requirements stemming from CRDV/CRR2. In addition, the IFD was implemented into French law in June 2021 and has applied since 26 June 2021. The new prudential framework for investment firms is more proportional and risk-sensitive than the previous framework. In particular, investments firms must now be classified under either class 1, 1bis, 2 or 3 depending on their size and activities (each class being subject to a tailored regime). This new regime entails, inter alia, revised governance, remuneration and capital requirements.

Implementation of the Copyright directive: On 12 May 2021, France implemented articles 2(6) and 17 to 23 of Directive 2019/790 on Copyright and related rights in the Digital Single Market (DSMD). This establishes the principle of remuneration of authors and performers. It also details how to readjust their remuneration, revoke their license (in full or part) or transfer their rights. As for online content-sharing providers, the Directive furthers their obligation to safeguard and use preventive measures such as blocking or removing unauthorised content. 

DIFC-LCIA Arbitration Center Abolished: French companies with contracts and investments in the Middle East are taking careful note of Dubai’s Decree No 34 of 2021, effective on 20 September 2021, which abolished the DIFC-LCIA Arbitration Centre, one of the most active Middle East-based arbitration centres, in an apparent effort to concentrate institutional arbitration in a to be revamped Dubai International Arbitration Centre (DIAC), Dubai’s onshore arbitration institution. The Decree notably provides that pre-existing arbitration agreements calling for DIFC-LICA arbitration remain valid and effective but subject to DIAC administration unless the parties agree otherwise. The Decree says that arbitral tribunals already formed under the DIFC-LCIA Rules are supposed to continue to handle such cases “pursuant to their applicable rules and procedures”.

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Paris Court of Appeal sets aside US$90m-arbitral award based on evidence of corruption: The Republic of Gabon and the City of Libreville, both represented by Linklaters, sought to set aside a US$90m-ICC arbitral award rendered in 2018 on the grounds that the award gave effect to public contracts tainted by corruption. It was argued that the contractor had been awarded the contracts in exchange for a ‘wedding gift’ to the mayor of Libreville; one of the main decision-makers in awarding public contracts. The Paris Court of Appeal decided that the ‘wedding gift’ sufficiently proved the existence of corruption and concluded that the award – which gave effect to the contract tainted by corruption – was contrary to French public policy and must be set aside. The Court clarified its strict approach to corruption and confirmed that evidence of corruption, even if it was not known by or brought to the attention of the arbitral tribunal, must lead to the setting aside of the award. This decision confirms the Court’s broad power of scrutiny exercised when hearing allegations of corruption and, more generally, the increasingly active role played by the French judiciary to combat corruption in commercial transactions. Read the judgment here (in French).

Supreme Court reverses its position on transfer of criminal liability in mergers: In a landmark decision released in late 2020, the Supreme Court accepted the transfer of criminal liability in mergers by ruling that the absorbing company may be sentenced to a fine or confiscation for a criminal offence committed by the absorbed company prior to the merger.

Energy performance diagnosis: From 1 July 2021, energy performance diagnosis (DPE), which shall be appended to commercial leases, (i) implements a new method to measure a property’s energy consumption as well as their emissions, and (ii) has become enforceable against landlords, whose liability is incurred in cases of false information. Therefore, it is strongly recommended to have the energy performance diagnosis carried out by certified and recognised diagnosticians. 

Case law confirmation on indexation clauses: On 30 June 2021, the French Supreme Court confirmed that indexation clauses impeding the variation of rent (e.g. upwards only indexation clause) shall be considered as unwritten (réputées non écrites). This is because they circumvent the legal revision mechanism provided for in article L. 145-39 of the Commercial Code i.e. (i.e. rent adjustment - when due to indexation, the rent is increased or decreased by 25%). As such, no time limit shall apply to legal actions against such type of clauses. The Court also confirmed that judges shall assess on a case-by-case basis whether an indexation clause is divisible or not (i.e. whether it could remain applicable without the litigious provisions) in order to decide the undue payments recoverable by the tenant.

Restructuring reforms come into force: Key reforms were introduced to French insolvency law rules that implement the EU Restructuring Framework Directive, and apply to any new proceedings from 1 October 2021. One of the most noticeable developments is that creditor committees are replaced by classes of parties “affected” by the restructuring proposal (which may also include equity holders). Class members must share a sufficient commonality of economic interest (rather than purely a legal interest) – secured creditors, other creditors and equity holders are to be split in their own, distinct classes at the very least and classification must comply with any pre-petition subordination agreements. Importantly, the reforms will allow for cross-class cramdown, provided certain conditions are satisfied, including the absolute priority rule (which can be overridden in certain circumstances), which shall drastically change the dynamics of the restructuring approval process. In safeguard, the 10-year term-out threat is no longer available where there was a failure to approve the plan through a vote of the affected classes.

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Administrative Supreme Court - Three significant decisions relating to the taxation of management package/employee incentive: The French Administrative Supreme Court (Conseil d’Etat) held on the same day three significant decisions relating to the taxation of management package in France. The French Administrative Supreme Court put emphasis on those decisions by posting them on its website. Two of these cases are in relation with share warrants (also known as “BSAs”) and the other involves share options granted outside of the French company law regime. The French Administrative Supreme Court has ruled that gains from these schemes must be taxed as “salaries and wages” and not as “capital gains from the sale of securities”, if the employees benefited from them in return for the duties they performed in the company. Such court decisions probably have consequences beyond the schemes described in those cases.

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